Oil and ag compete for role of ND's biggest industry

Is the oil industry now bigger than farming in North Dakota?
The latest figures are rather startling, raising eyebrows on even oil industry experts gathered in Grand Forks this week who are most in touch with the boom that hasn’t leveled off after six years.

By:
Stephen J. lee, Forum News Service

Is the oil industry now bigger than farming in North Dakota?

The latest figures are rather startling, raising eyebrows on even oil industry experts gathered in Grand Forks this week who are most in touch with the boom that hasn’t leveled off after six years.

In the 12 months ended July 30, the value of the record amount of crude oil and natural gas produced in North Dakota totaled $24.9 billion, based on production figures and average prices for Bakken sweet crude and gas reported monthly by Lynn Helms, director of the Department of Mineral Resources and the state’s chief regulator of the industry.

Like nearly all numbers in the Oil Patch during this boom, that figure is a record.

It’s also more than double what was the record value of the state’s crops and livestock grown and raised in 2012, based on prices received by farmers.

The total value of the state’s crops and livestock, in prices received by farmers and ranchers, hit a record $12.1 billion in the calendar year 2012, said Darin Jantzi, director of the U.S. Department of Agriculture’s North Dakota office of the National Agricultural Statistics Service in Fargo.

And that was a record by a long shot, far outpacing the previous record of $9 billion in 2010, including $8.1 billion for crops, mainly corn, wheat and soybeans. Revenue from cattle constitutes 90 percent or more of livestock prices received.

Crop values are expected to be down substantially this year, farm experts say, because of lower production and prices.

Following the money

But oil and gas production keeps growing as the Bakken boom hasn’t slackened. In fact production was up a hefty 6.4 percent in July, according to Helms. And oil prices have risen this summer, to about $97 per barrel for Bakken crude this week, about 14 percent above the average price received the past 12 months of $85.83, according to Helms’ figures.

However, that doesn’t mean the oil and gas industry is twice the size or impact of agriculture in the state’s economy, says Dean Bangsund, a research scientist at North Dakota State University who tracks the state’s economic sectors.

The two industries, agriculture and petroleum, aren’t easily comparable even in dollar amounts, Bangsund said this week. For one thing, the ways revenue gets spent, and where, are quite different, he said.

Much of the money from agriculture’s harvests remains in the state, since its prices are received by farmers who pretty much have to be here to get the prices.

Meanwhile, much of the money received for crude oil pumped out of the more than 9,000 wells in the state leaves North Dakota because oil companies tend to be based in other states, even other nations, Bangsund said. Even most of the royalties paid to the owners of mineral rights to the oil — which now averages nearly 18 percent of every dollar’s worth of oil — goes to people who live outside of North Dakota, he said.

Still, because this is still boom time, petroleum companies and others who share the revenue from crude oil are investing huge amounts in the state in needed infrastructure to handle it all, Bangsund said.

Bangsund said the latest study found that about 43 percent of mineral owners collecting royalty payments from oil wells live in the state.

His analyses of the state’s economic base do not track investment dollars, or how oil companies, which often operate worldwide portfolios allocating revenue in complicated ways that are about impossible to track, Bangsund said.

But some of the oil and gas money that might go initially to an oil firm’s headquarters in, say, Denver or Houston, comes back to North Dakota in that company’s work here, not just in wages but in capital investments, he said.

Meanwhile, a “very high percentage of crop and livestock sales go to producers who live and work in North Dakota,” Bangsund said.

However, his research has shown that petroleum is grabbing a bigger slice of the state’s economic pie, while agriculture’s share is shrinking. The good news is that the pie itself is rapidly swelling.

North Dakota’s economic base grew from $8.3 billion in 1990 (or $13 billion in 2011 dollars) to $33.2 billion in 2011, Bangsund reported this spring. Agriculture’s share of that base fell from 37 percent in 1990 to 23.5 percent in 2011, while petroleum (exploration, extraction and refining) grew from 7.2 percent to 15.9 percent, he says.

It’s a fair question now, Bangsund said, to wonder if petroleum’s share is larger than agriculture’s. But it’s not clear yet, he said.

Good times

Despite the changing places of oil and agriculture, farming has never been better in North Dakota, in economic and production terms, said Andy Swenson, an agricultural economist with NDSU.

The dramatic improvement in recent years in farming revenue can be seen in two numbers: From 1999-2006, North Dakota’s crops averaged $2.93 billion in value each year; from 2007-2012, they averaged $7.34 billion in value, based on prices received by farmers, an increase of 150 percent, according to figures provided by Jantzi’s office.

Swenson said this year’s crop values will be down substantially from last year’s, but still could end up being the second-highest ever.

Meanwhile, if crude oil production has kept up the pace it set in July, the state now is pumping very nearly 1 million barrels of crude a day, although the official figures for September won’t be in until November.

It’s unlikely the same pace seen in July’s increase can be maintained, Helms said.

“We should get there by year end.”

The state’s crude oil production has more than quintupled since 2006, when it was 40 million barrels, to 243 million barrels in 2012. At the estimated production now of more than 900,000 barrels a day by Dec. 31, 2013 crude production will total more than 300 million barrels. Already by July 30, 170 million barrels had been pumped this year and output increases nearly every month.

Based on recent rising oil prices nearly $90 million worth of crude is being pumped every day, said Ron Ness, president of the North Dakota Petroleum Council, this week in Grand Forks.

He knows firsthand the effects of the Bakken boom, but he was one of several insiders at this week’s petroleum conference in Grand Forks whose eyes widened on hearing the latest figures on the value of the bounty.

There is one big difference between petroleum and agriculture, Ness said: